The City sleeps as euro battle commences

SUN READERS, with their fingers firmly on the pulse of patriotism, voted last week by a majority of 22 to one against Tony Blair taking this great nation into the single currency. A triumphant smile must be spreading across the faces of those patriotic Brits working in the London HQ of "Business for Sterling", an organisation recently formed by those business people who would be most negatively affected if Britain were to join Europe in a single currency.

In fact, a better name for the organisation might be "Bulldog Business Against Foreign Competition".

In the offices and trading rooms of the City, however, nobody has taken the slightest bit of notice. In fact, the City couldn't care less whether the country adopts the single currency or not. If the masses of this fair country would rather chug along in their Robin Reliants, instead of steaming down the autobahn in their BMWs, it is of no concern to the investment bankers, equity and fixed income salespeople, and other members of the financial community, who stand to cash in on what is going to be the world's most dramatic financial realignment for the past 100 years. Europe is on the edge of potentially the biggest boom of this century and the great minds in the City are only just beginning to realise the full scope of opportunities that lies ahead. Despite the massive disparity between the wealth of Northern Europe and that of the UK, the financial markets throughout Germany and France are far less sophisticated than that of Britain. German corporates are now far less likely to go to the capital markets, either through the issuance of bonds or equity, to finance themselves, than UK companies. The reliance of major European companies on bank finance will probably be the first casualty of the euro, and what's bad news to German corporate bankers couldn't be better news to City sharks. It has been forecast that the combined pan-European debt and equity markets could grow to be as big or bigger than that of the UK in the next 10 years. The origination, research, syndication and distribution of the vast majority of this debt and equity will likely run out of the Square Mile. If the predictions are correct this would represent a threefold increase in business for the City. On the investment management side, equally revolutionary changes are predicted. Fund managers throughout Europe will be able to invest throughout the common currency zone. The first casualty of this change will be the breakdown in traditional relationships with local brokers as investment managers seek increasingly sophisticated research and advice. Fixed income and equity salespeople in the City will see their client lists increase dramatically. In a rather bizarre twist, though, indirect European investment in the UK will be the only casualty as individual investors on the Continent may shy away from the currency risk. London is not without competition from other European financial centres, who are also seeking to capitalise on this radical economic restructuring. The great minds of finance in Frankfurt have organised themselves in an organisation called Finanzplatz, which has a double strategy of lobbying governments to ease restrictive financial controls and promoting Frankfurt as a financial centre for Northern Europe. As the centre of the European Central Bank, Frankfurt views itself as an attractive alternative location for foreign financial firms to establish their European headquarters. Whereas the residents of "Main-hattan" lack the critical mass necessary to compete with the City on equal terms, the Germans have a strategy of investment and long-term planning that occasionally catches the Square Mile off guard. There are signs that the Frankfurt Stock Exchange has its sights set on an even bigger goal. A recent press announcement jointly issued by the Deutsche Borse and NASDAQ stated that they were setting up a joint venture to "develop co-operations and alliances with the important stock exchanges of the world". The "important stock exchanges of the world" are the 11 national exchanges within the common currency zone. Although it may take years to organise, Frankfurt obviously sees itself as the future centre for a pan-European exchange and, with the help of its powerful new American friend, the Frankfurt Stock Exchange might very well pull it off. This may be a spectacular psychological triumph over the Square Mile, but would mean very little in terms of actual job losses. The origination of IPOs, and the distribution of the offerings would still be run out of London, along with all the accompanying research and support. Richard Lyons, of the City headhunting firm Carr-Lyons, feels that London will only benefit from EMU, particularly on the fixed income side. According to Lyons: "Investment management clients of ours are already putting together teams to manage euro currency assets, rating agencies are increasing business, and North American and European investment banks have been steadily building up their credit derivatives groups. I see little downside to the introduction of the common currency and see a potential significant upside for the City." In the business areas in which Carr-Lyons specialises - corporate finance, structured finance and credit risk - Richard Lyons views the advantages of the City over other European financial centres as "unassailable". How long would it take 37,000 Sun readers to change their opinion if they had a chance to earn a City - sterling or euro - bonus?

Copyright 1998
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